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Companies Increase Use of Step Zero Test, Study Shows

Tammy Whitehouse | September 16, 2014

Companies are making increased use of the “step zero” method for determining if goodwill on the balance sheet should be marked down, according to a recent analysis by valuation firm Duff & Phelps.

In a random sample of 355 companies that carried goodwill in 2013, 41 percent were able to use the screen without having to perform the usual two-step test for assessing goodwill. That was up from 33 percent of companies in a similar analysis in 2012, the firm reported.

Goodwill is an asset on corporate balance sheets that arises from acquisitions representing the value of a particular acquisition that exceeds its collective assets and liabilities. Accounting rules require companies to take a fresh look at goodwill annually after an acquisition to see if it still holds up over time or should be written down on the balance sheet. Traditionally...

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